Are
you aware of a tax issue that could be related to your position with your
corporation, namely, whether expenses you incur personally on behalf of the corporation
will be deductible?
In
general, you cannot deduct an expense you incur on behalf of your corporation,
even if it is a legitimate “trade or business” expense and even where the
corporation is financially troubled. This is because a taxpayer can only deduct
expenses that are his own. And since your corporation's legal existence as a
separate entity must be respected, the corporation's costs aren't yours and
thus cannot be deducted even if you in fact pay them. What's more, the
corporation won't be able to deduct them either because it didn't pay them
itself. Accordingly, please be advised that it shouldn't be a practice of your
corporation's officers or major shareholders to cover corporate costs.
On the
other hand, if a corporate executive incurs costs which relate to an essential
part of his duties as an executive they may be deductible as ordinary and
necessary expenses related to his “trade or business” of being an executive. If
you wish to set up an arrangement providing for such payments and safeguarding
their deductibility, a provision should be included in your employment contract
with the corporation stating the types of expenses which are part of your
duties and authorizing you to incur them. For example, you may be authorized to
attend out of town business conferences on the corporation's behalf at your
personal expense.
Alternatively,
to avoid the complete loss of any deductions by both yourself and the
corporation, an arrangement should be in place under which the corporation
reimburses you for the expenses you incur. This will
at least allow the corporation to deduct the amount of the reimbursement.
Please
call if you would like our firm to assist you regarding any of the above or if
you wish to discuss any of these matters further.